Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
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Chapter 8, Problem 9QAP
(a)
To determine
To assess: The ability of
(b)
To determine
To assess:The ability of Phillips curve to predict the changes in inflation between years 2009 and 2010.
(c)
To determine
To predict: The inflation after the year 2014.
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The corresponding table includes a breakdown including Inflation Rate, Unemployment Rate, Price Level, and Real GDP. Using the data below, plot the graphs:
Plot the short-run Phillips curve and the aggregate supply curve on separate graphs.
Plot the long-run Phillips curve on a separate graph, when the natural unemployment rate is 6%.
Inflation Rate
Unemployment Rate
Price Level
Real GDP
2%
7%
104
9.8
3%
6%
103
10.0
4%
5%
102
10.2
Q2. Go to the Statistics Canada website https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810000501 to view the annual average Consumer Price Index for Canada. Change the Reference period years from 1999 to 2021 and click Apply to see the updated data table. Answer the following questions and provide data and calculations where necessary.
Calculate the rates of inflation between 2018-2019 and 2020-2021. Round your answer to two decimal places.
You observe the following short-run Phillips curve for the economy:
T = 9.2 -0.26(u - 6.5%) + v.
There are no supply shocks to the economy, and the actual unemployment rate is 6.5% (and will stay
that way for the foreseeable future).
What will expected inflation be next year? Write your answer as a percentage, and round at one (1)
decimal. Do not write the percentage sign. If you need more information to answer the question, write
"O".
Chapter 8 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
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Similar questions
- Assume the economy is described by the following equations: Phillips Curve: Okun's Law: T = Tt-1 – 1.5% – (ut – 0.05) AY/Y = 3% - 3(ut– 0.05) a) How could we know that expectations are not rational in this setup? b) Imagine that last year's inflation is equal to 11%. Imagine the Federal Reserve raises unemployment to 8% and keeps it there until inflation reduces to 2%. How many years of 8% unemployment would it take for inflation to reach 2%? c) What values of inflation would we observe over time as inflation reached 2%? d) How much output is lost to bring down inflation to 2%?arrow_forwardUse the graph(s) created in the previous question to contrast the effects and consequences of inflation and deflation in the short and long term. (the question before was: Using the data in the table, integrate the expected relationship of the behavior of inflation with the phases of the economic cycle. You must use the different levels of inflation rate with economic growth and construct graphs to present your analysis arguments.)arrow_forwardProblem 2. Consider the following Phillips Curve n = En – 0.6(u – 0.05) a) Explain the above Philips Curve briefly. b) Assume that Ex = 0.02. Draw the graph of the Phillips curve. What is the slope of the curve? What are the long-run unemployment rate and the long-run inflation rate? c) Is there any possibility that a government can decrease the inflation rate without any change in the unemployment rate? If yes, how? Explain it. d) Is there any possibility that a government can increase the inflation rate without any change in the unemployment rate? If yes, how? Explain it. e) Considering the Philips Curve as T = 0.02 – 0.6(u – 0.05), and the government announces that it implements an expansionary monetary policy: • el) Describe the Lucas Critique. • e2) Considering the Locus Critique, do you think that the above Philips curve is a good equation to study the relationship between inflation and unemployment? Why? Explain it.arrow_forward
- Inflation started to creep up in the late 1960's. By 1968, inflation was about 4%, and by 1973, inflation was about 6%. By 1980, inflation was at 13.5%. The Fed, led by Chairman Paul Volcker, engineered a recession that eventually disinflated the economy. Using the economic the concepts learned in class, especially the economics fluctuations model, explain how the Fed disinflates the economy from 13.5% to 3.5%, and what the effects of that disinflation are in the SR and the LR. You cannot draw graphs here, so you will need to explain the model and the shifts in words. Be thorough. (The answer should contains 200 words)arrow_forwardUsing the data in the table, integrate the expected relationship of the behavior of inflation with the phases of the economic cycle. You must use the different levels of inflation rate with economic growth and construct graphs to present your analysis arguments.arrow_forwardUsing the data in the table, integrate the expected relationship of the behavior of inflation with the phases of the economic cycle. You should use the different levels of inflation rate with economic growth and construct graphs to present your analysis arguments.arrow_forward
- The Phillips curve in Lowland takes the form of π = 0.04 − 0.6(u − 0.05), where π is the actualinflation rate and u is the unemployment rate. The Phillips curve in Highland takes the form ofπ = 0.08 − 0.4(u − 0.05). The current unemployment rate in both countries is 9 percent (0.09). For both countries, analyze the impact on inflation of a 2% decrease in unemployment? In which country will policymakers face a bigger trade-off if they try to reduce unemployment in the shortrun? Whyarrow_forwardThe graph shows Iran's short-run Phillips curve and long-run Phillips curve when the natural unemployment rate is 10 percent and the expected inflation rate is 12 percent a year. Draw a point to show the current unemployment rate and inflation rate according to the news clip. Suppose Iran removes the subsidies and consumers don't know what the higher prices will be. Illustrate the most likely path of unemployment and inflation. Draw either an arrow along the SRPC showing the direction of change, or a new SRPC. Label it 1. Suppose instead that Iran removes the subsidies and announces the new prices so that consumers know what they are. Illustrate the most likely path of inflation and unemployment. Draw either an arrow along the SRPC showing the direction of change, or a new SRPC Label it 2. ILSarrow_forwardc) Suppose that the economy has the following Phillips curve T = T.1 – 0.5 (u-0.06) i. What is the natural rate of unemployment? ii. How much of cyclical unemployment is necessary to reduce inflation by 5 percent points? iii. Using Okun's law, compute the sacrifice ratio iv. Inflation is running at 10 percent. The central bank wants to reduce it to 5 percent. Give two scenarios that will achieve that goalarrow_forward
- Suppose that the level of unemployment in the economy is determined by the follow equation: U = 7.55 1.88*(i - ie) Where U is the unemployment rate, i is the actual inflation rate, and it is the expected inflation rate. All variables are entered in percentage form (e.g. if inflation is 30.57%, you plug in 30.57 for i, not 0.3057). Last year, the inflation rate was 7.87%, and people have adaptive expectations. What does the inflation rate need to be this year in order for the unemployment rate to be 2.81%? Note: Everything is already in percentage form. You do not need to multiply or divide by 100 at any point. Enter in your answer as it is calculated in the equation. Round your final answer to two decimal places.arrow_forward(Problem 3, Page 477) In a certain economy the expectations-augmented Phillips curve is π = π² − 2 (u – ū) and ū= 0.06. a. Graph the Phillips curve of this economy for an expected inflation rate of 0.10. If the Fed chooses to keep the actual inflation rate at 0.10, what will be the unemployment rate? b. An aggregate demand shock (resulting from increased military spending) raises expected inflation to 0.12 (the natural unemployment rate is unaffected). Graph the new Phillips curve and compare it to the curve you drew in Part (a). What happens to the unemployment rate if the Fed holds actual inflation at 0.10? What happens to the Phillips curve and the unemployment rate if the Fed announces that it will hold inflation at 0.10 after the aggregate demand shock, and this announcement is fully believed by the public? c. Suppose that a supply shock (a drought) raises expected inflation to 0.12 and raises the natural unemployment rate to 0.08. Repeat Part (b).arrow_forwardWhich of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college? Check all that apply. Professors required each student to buy 10 textbooks, regardless of the price. As the price of textbooks increased, more and more students turned to the used-book market or chose not to buy textbooks at all, instead using the copies on reserve in the library. A new, safe method of memory enhancement became available for purchase. The quality and design of calculators improved dramatically from 2017 to 2019. For example, calculators made in 2019 accept memory cards, whereas those made in 2017 do not, but this quality change is hard to measure.arrow_forward
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